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Robert and Ardis James Foundation v. Meyers

Appeals Court of Massachusetts, Suffolk

February 12, 2015

Robert and Ardis James Foundation & another [1]
Daniel Maxwell Meyers

Argued: March 14, 2014

Civil action commenced in the Superior Court Department on November 16, 2006.

After transfer to the business litigation session, the case was heard by Christine M. Roach, J.

Kevin P. Martin ( Katherine Sadeck with him) for the defendant.

Joseph L. Bierwirth ( Thomas J. Carey, Jr., with him) for the plaintiffs.

Present: Cohen, Graham, & Grainger, JJ.


Graham, J.

[25 N.E.3d 887] This action arose out of two one-page letter agreements (letter agreements or agreements) between plaintiff Robert James and the defendant, Daniel Maxwell Meyers,[2] in which James agreed to provide Meyers with $653,340 for the purchase by Meyers of 31,107 shares of stock in the First Marblehead Corporation, a company cofounded by Meyers. In exchange for

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supplying Meyers with the funds, James would receive the right to participate in the proceeds of the sale of the 31,107 shares. However, notably absent from each letter agreement was any provision governing its termination or establishing conditions upon which Meyers would be required to sell their stock.[3]

In the fall of 2004, James's daughter, Catherine James Paglia (Catherine[4]), seemingly on behalf of the James family, inquired of Meyers, seeking termination of the agreements. Meyers declined and, on November 16, 2006, the plaintiffs filed a multicount complaint in Superior Court, later amended, asserting claims for division and distribution of the shares (count I), dissolution of a partnership or joint venture (count II), declaration of an agency relationship (count III), breach of an implied term of the contract (count IV), breach of the implied covenant of good faith and fair dealing (count V), payment of a share of the dividends (count VI), and declaratory judgment (count VII).

After a six-day bench trial in April, 2011, the trial judge found in favor of Meyers on counts I through IV and VI. She did, [25 N.E.3d 888] however, determine that on July 31, 2006, Meyers breached the implied covenant of good faith and fair dealing (count V). The judge awarded the plaintiffs damages based on the fair market value of the shares of the stock as of the time of the breach. With interest, the damages awarded were $44,052,678.[5]

The trial judge subsequently denied Meyers's motion for reconsideration as well as the plaintiffs' motion to amend the judgment in their favor on counts II, IV, and VI. The central issue on appeal is whether Meyers breached the implied covenant of good faith and fair dealing. We conclude that he did not and, accordingly, reverse.


We summarize the facts from those agreed-upon, and the judge's extensive findings. Additional undisputed facts are sup-

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plied for context.

Meyers is a 1984 graduate of Brandeis University, with an undergraduate degree in economics. He worked in the financial services industry for the next seven years. In 1991, he and Stephen Anbinder founded First Marblehead LP, a provider of higher education private student loan origination and services.

Meyers served as the managing partner of First Marblehead LP. In 1995, upon incorporation, First Marblehead Corporation (First Marblehead) was a privately held Delaware corporation with its headquarters in Massachusetts, and Meyers became its chief executive officer (CEO) and chair of the board of directors, positions he held through 2005. On October 31, 2003, First Marblehead offered its common stock to the investing public in an initial public offering (IPO), and its shares have been traded on the New York Stock Exchange since that date.

James, eighty-six years old at the time of trial, is a professional investor with more than forty years of experience investing in various business ventures. He graduated from Harvard Business School, and later earned a Ph.D. in economics from Harvard. James taught economics and business organization at the Massachusetts Institute of Technology (MIT) and was involved in the creation of MIT's Sloan School of Management. In 1969, he and a friend formed Enterprise Asset Management, Inc. (EAM), a highly successful investment firm with offices on Fifth Avenue in New York City. EAM has interests in diverse businesses and industries throughout the world.[6]

James became familiar with Meyers through his children's involvement with First Marblehead. Catherine, a former vice president at Morgan Stanley & Company, had been a principal in Interlaken Capital (Interlaken), a private equity firm. Interlaken made an investment in First Marblehead in the mid-1990s, as did Catherine and other Interlaken partners.

Catherine introduced her brother Ralph James to Meyers in the mid-1990s. In 1995, Meyers hired Ralph as executive vice president of First Marblehead. Subsequently, Ralph held the position of president and chief operating officer. In 2004, he was elected vice chair of First Marblehead's board of directors.

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In approximately 1997, Meyers developed a personal relationship with James [25 N.E.3d 889] and the two met several times a year in James's New York office and at the New York Yacht Club. They also took several leisure trips together. James considered the First Marblehead business plan " quite a brilliant thing." He also contacted one of the larger investors in First Marblehead who assured James that " this guy [Meyers] knows what he is doing."

In November, 1997, James made his initial investment in First Marblehead. Meyers wanted to purchase a leisure boat and, to fund the purchase, he sold 10,000 shares of his privately held common stock in First Marblehead to James at thirty-six dollars per share.[7] The ...

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